If the number of producers in a market increases, what happens to the equilibrium price and...

If the number of producers in a market increases, what happens to the equilibrium price and quantity?

Question 10 options:

A)	Equilibrium price decreases, and equilibrium quantity increases.

B)	Equilibrium price and quantity increase.

C)	Equilibrium price increases, and equilibrium quantity decreases.

D)	Equilibrium price and quantity decrease.

Solutions

Expert Solution

THE CORRECT OPTION FOR THE GIVEN PROBLEM IS OPTION A

REASON-

as we know when the number of producers in the market would increase then there would be excess supply in the market and thus there would be a situation where AS>AD and there would be immense competition among the sellers.they would provide goods at a cheaper rate and as a result the supply curve would shift rightward.we can see the new equilibrium price is less than the earlier level and the quantity demanded is comparatively increased.
therefore the first option justify the scenario and therefore is the correct answer.

we can understand this topic with the help of following diagram-

when there were limited producers then the price was OP and quantity was OQ and equilibrium was at E point but when more producers entered in the market then the supply curve shift rightward and then the price decreased to OP1 and quantity demanded increased to OQ1

Rahul Sunny answered 1 year ago

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